Accounting Finance Analysis 2022

Accounting

Finance 1
Contents
Introduction.................................................................................................................................................2
Task One.....................................................................................................................................................2
Task Two.....................................................................................................................................................8
Task Three- Thomas cook business model canvas......................................................................................9
Thomas Cook causes for the company collapse.....................................................................................11
References.................................................................................................................................................13

Finance 2
Introduction
The main aim of this paper is to analyses the financial statement by using the financial
techniques such as ratio analysis. In this paper, financial ratios have been used to analyze the
financial position of Thomas Cook as it helps to understand the concept of financial position of
the company (Williams, and Dobelman, 2017). This paper has divided into three tasks. In task 1,
the calculation and analysis is based on financial ratio, in task 2 the recommendation will be
given and in the last third task, the business model has been discussed in order to examine why
the company face the failure.
Task One
Financial Ratio
Financial Ratio's
Thomas
Cook Intl
2015 2016 2017 2018 2017 2018
Profitability
Net Profit Net income 19 9 9 -163 6.4 55.5
Net sales 7834 7812 9006 9584 29,423
.60
27,622
.70
0.24
%
0.12% 0.10
%
-
1.70
0.02% 0.20%

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%
Return on Equity Net income 19 9 9 -163 6.4 55.5
Net Equity 368 391 256 291 449.9 505.3
5.16
%
2.30% 3.52
%
-
56.01
%
1.42% 10.98
%
Operating profit
margin
Operating
profit
211 205 227 97
784 975.8
Net sales 7834 7812 9006 9584 29423.
6
27622.
7
2.69
% 2.62%
2.52
%
1.01
% 2.66% 3.53%
Liquidity Ratios
Current Ratio
Current
Assets
2035 2656 1407 1039
1202.2 2265.6
Current
Liabilities
3720 4630 4339 4222
142.9 154
0.55 0.57 0.32 0.25 8.41 14.71
Quick Ratio Quick Assets 2000 2613 1365 995 1202.2 2265.6
Current
Liabilities
3702 4630 4339 4222
142.9 154
0.54 0.56 0.31 0.24 8.41 14.71

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Efficiency Ratios
Account Receivable
Accounts
receivable *
365
2135
25 251120
2646
25
2960
15 243.7 292.1
Credit sales 7834 7812 9006 9584
29423.
6
27622.
7
27.26 32.15 29.38 30.89 0.01 0.01
Total Asset turnover
Net Sales 7834 7812 9006 9584 29423.
6
27622.
7
Average total
Assets 5958 12913 6605 6587
6096.8
5
7034.0
5
1.31 0.60 1.36 1.45 4.83 3.93
Long term financial
structure
Debt to Equity Debt 5590 6564 6349 6278 2221.8 3081.1
Equity 368 391 256 291 449.9 505.3
15.19 16.79 24.80 21.57
Debt to Total Assets Debt 3702 4630 6349 6278 2221.8 3081.1
Total Assets 5958 6955 6605 6569 6243.4 7824.7
0.62 0.67 0.96 0.96
Times interest EBIT 211 205 188 155 15.2 101.5

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coverage ratio
Interest
Expense 179 169 3226
1067
6 8.8 46
1.179 1.213 0.058 0.015
Market Value ratios
EPS Net income 19 9 9 -163 6.4 55.5
WAOC 340 366 256 291
18,935
.00
18,549
.0
0.06 0.02 0.04
-
0.560
1 0.0003 0.0030
Price to Earnings
Ratio Market Price 72.6 65.89 81.5 66.25 45 45
EPS 0.056 0.025 0.035
-
0.560 0.32 2.93
1296.
43 2635.60
2328.
57
-
118.3
0 140.63 15.36
Profitability
Profitability measures the ability and capability to generate the revenue of the company. It is
observed that the net income of Thomas Cook has been decreases from the year 2015-2018. In

Finance 6
the year 2018, the amount of company has been decreases due to which the company faces the
challenges in the coming future (Thomas Cook, 2017). In 2018, the amount of net income is
negative -163 which depicts that the financial situation of the company is not good (Thomas
Cook, 2015). As compare to its competitors Intl, it has been seen that the net income of Intl has
been increases in the last year 2018. The company provides the services to large number of
consumers due to which its percentage of net profit is 0.20%. The capability of generating the
revenue is high in Intl as compare to Thomas Cook (Daft, and Albers, 2012). Thomas Cook is
not able to generate the high revenue as it finances the operation activities through debt instead
of issuing the shares in the market. It states the overall financial position of the company is not
good as it face the net loss (Zainudin, and Hashim, 2016).
Liquidity
Liquidity ratio measures the ability of the company to pay the short term obligations by using the
current assets. As per the evaluation of ratios, it has been found that the current ratio of Thomas
Cook is decreasing year by year such as 0.55, 0.57, 0.32 and 0.25 in the year 2015, 2016, 2017,
and 2018 respectively (Thomas Cook, 2017). The decreasing current ratio depicts that the
company does not invests in current assets due to which it ability to pay to short term expenses
has been reduces (Adelaja, 2015). Quick ratio of the company is also decreasing as its quick
assets have been decreases and the amount of current liabilities has been increases as compare to
current assets. It depicts that the current assets is less as compare to current liabilities due to
which it is not able to pay all liabilities. As compare to Intl, it has been seen that the current
liabilities of the company is very less as compare to current assets such as 8.41, and 14.71 in the
year 2017 and 2018 respectively due to which it has the capability to pay all the liabilities with
the use of current assets (Intl, 2018). At the end of this ratio, it can be said that the liquidity

Finance 7
position of Intl is stronger as compare to the liquidity position of Thomas Cook as Intl invests in
current assets for smoothing its daily routine operations.
Working Capital Efficiency
Working Capital is the difference between the current assets and current liabilities. As discussed
above in the liquidity ratio that liquidity position of Thomas Cook has been decreases due to its
amount of current liabilities has been increases as compare to current assets. The current assets
of the company have been increases due to which the company is not able to pay its liabilities.
The efficiency of working capital is less as compare to Intl (Intl, 2017). The liquidity position of
Intl is strong as its current assets are high as compare to current liabilities.
Long Term financial structure
Long term financial structure defines the company source from which it finances the operation
activities. Long term financial structure includes the debt ratio, debt to equity ratio and the
others. It has been seen that the debt amount of Thomas Cook has been increases which is not
beneficial for the company. In the continuous year 2015 to 2018, the company finances its
operation activities by borrowing money on loan instead of issuing shares. It affects the financial
situation of the company. In the year 2015, the amount of debt of the company is 5590 and in the
year 2018 it becomes 6278 which represent that the company finances the operation activities
through debt instead of issuing shares (Thomas Cook, 2018). The debt to equity ratio of the
company is But if compare to the competitors, it has been seen that Intl issues the equity shares
to finance the operation activities instead of borrowing the money as its amount of equity shares
has been increases (Grant, 2016).
Investors Perspective

Finance 8
According to the investors, investors have to invest in its competitor (Intl) or buy its shares
because of the share price of Thomas Cook does not have high value in the market. It is observed
that the value of EPS is decreasing in the financial years due to which the investors can faces the
challenges in the coming future (Accounting Tools, 2018). It is observed that the investors have
to invest in Intl as its financial position is stronger as compare to Thomas Cook (DeFusco,
McLeavey, Pinto, Runkle, and Anson, 2015). There are various issues that an investors face by
investing in the company. The first one is that the investors do not get the high return from the
company on its shares as its financial situation is not stable to provide the high return to
shareholders. The company faces the loss instead of net income due to which it does not have net
income to gives the dividend to shareholders (Schroeder, Clark, and Cathey, 2019). Being the
investor, it is required to evaluate the financial situation of the company before investing into it
that is why; it is suggested that the investors have to purchase the share of Intl if its in the option
of Thomas Cook.
Task Two
Recommendations
As per the above analysis, it has been seen that the financial position of Thomas Cook has been
decreases and its faces the net loss instead of net incomes. It has been found that the liquidity
position of the company is not that strong as its amount of current assets is less as compare to
current liabilities. The company is not liable to pay the current liabilities with the use of current
assets. It is suggested that the company has to invest the amount in current assets in order to
improve its liquidity position instead of investing fixed assets (Al Nimer, Warrad, nd Al Mari,
2015). It is essential for the company to pay its all short term expenses so that it will operates the

Finance 9
business effectively and smoothly in the market. The other factors that the company has to
implement to maintain the efficiency in the company is that it has to reduce its liabilities by
issuing the shares to finance the operation activities of the company (Robinson, Henry, Pirie, and
Broihahn, 2015). The operation activities of the company can finance by issuing the shares
instead of debt. It is beneficial for the company as in borrowing the money, the company is liable
to pay the interest with the amount which is borrow but in the case of equity shares, the company
is not liable to pay the amount of interest and it is also not necessary to pay the amount of shares
return to shareholder during the insolvency period. It is also suggested that the company has to
control its expenses so that it will earns neither the high revenue nor the loss. At least, it has to
control the expenses in terms in which it can earns the revenue in order to recover cost (Storey,
Keasey, Watson, and Wynarczyk, 2016).
Task Three- Thomas cook business model canvas
As per the views of Massa, Tucci and Afuah, 2017, Business model canvas is one of the most
vital tools for the businesses as it assist them in understand the way through which the business
operates in the market. However, this model permits the business to understand the way through
which it create the value it doesn’t tell the company about the way to eliminate and fails to offer
the details about its competitors that are present in the market. Contradicting this, Teece, 2018
says that the BMC ignore the essential elements which include visions and mission of company
which helps the business to growth in the market. This has been found that every company adopt
the business model as it provide them the guidelines through which they can easily operate their
business in the market.

Finance 10
The above given image shows the business model of the Thomas Cook Company. The key
partners of TC include the hotel as well as the travel agencies while key clients of the company
include the travellers including the wide range of segments, travel and hotel agencies. The main
operations off the company include the arranging the holiday plan for their clients as well as to
offer them the facilities of the transportation. From the past few years of the operations, the
business has been able to add the value for their clients by adding the pre-packaged holidays as
well as the channels of distribution which are Omni-channel in nature (BBC News, 2019). The
revenue of the company are majorly generated from the charge mark-up prices as well as

Finance 11
commission while its major costs consist of the salaries from the workers, making investment in
technology and also performing the sales marketing. The above given image presents the
philosophy of the Thomas cook which they implemented for their business.
Thomas Cook causes for the company collapse
Thomas Cook recently collapse due to several issues which have been witnessed in the detailed
research of the company. These issues include high debts, high jet prices, and failure to
determine the changes in the preferences of the customers. In the May, the financial report of the
company shows a £1.5bn loss with a £1bn written off from 2007 from merger with MyTravel
which is known for its brand Airtours and Going Places. The deal was supposed to offer
European giant who promising £75m-a-year cost savings. However, the reality was that merging
provides the profit only once and the deal saddled the group in huge debts due to which it
collapse (Collinson, 2019).
The company failed in their business model due to the issue of finance. In the research, this has
been found that the company has spent profit in the last years paying off £ 1.2 billion offline. In
addition to this, the business has huge debts of approx. £ 3 billion which include £ 1.7 billion
other debts and £ 1.3 billion debts to the suppliers. As per the views, the business collapsed due
to the high debt pile and the failure to retain the clients (Cadler, 2019). It has been found that
with more than 560 stores in the UK market, there has been a major shift in the clients
performing the activity of shopping on the high street as well as moving online. The major
causes of the failure consist of the tough trading conditions and it also result of Brexit as well as
the high prices of jet as it led to the pushing up the entire costs in 2019.

Finance 12
In the market, TC was unable to accept the frequent changes as per the needs of the customer. In
order to rescue the company had deal with the Chinese investors of about £900 million. The
company also asked government for the help of £150 bailouts. Although, the company failed it
was unable to crack the deal to obtain the liquidation.

Finance 13
References
Accounting Tools. (2018). Comparability. Retrieved From:
https://www.accountingtools.com/articles/2017/5/5/comparability
Adelaja, T. (2015) Accounting Ratios: Financial Ratios. US: CreateSpace Independent
Publishing Platform.
Al Nimer, M., Warrad, L., and Al Mari, R. (2015) The Impact of liquidity on Jordanian banks
profitability through return on assets. European Journal of Business and Management, 7(7), 229-
232.
BBC News (2019). Thomas Cook collapse - BBC News [Online] Available from:
https://www.bbc.co.uk/news/topics/c7rmr9v7q2nt/thomas-cook-collapse [Accessed on 13th
December 2019]
Cadler, S. (2019). Thomas Cook collapse was ‘a failure of corporate finance', says travel boss
[Online] Available from: https://www.independent.co.uk/travel/news-and-advice/thomas-cook-
collapse-travel-abta-corporate-finance-failure-mark-tanzer-a9146851.html [Accessed on 13th
December 2019]
Collinson, P. (2019) Why did Thomas Cook collapse after 178 years in business? [Online]
Available from: https://www.theguardian.com/business/2019/sep/23/thomas-cook-as-the-world-
turned-the-sun-ceased-to-shine-on-venerable-tour-operator [Accessed on 13th December 2019]
Daft, J. and Albers, S. (2012) A profitability analysis of low-cost long-haul flight operations.
Journal of Air Transport Management, 19, pp.49-54.

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DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Runkle, D.E. and Anson, M.J. (2015) Quantitative
investment analysis. John Wiley & Sons.
Grant, R.M. (2016) Contemporary strategy analysis: Text and cases edition. John Wiley & Sons
Intl. (2018) Annual Report 2017. [online] Available From:
http://ir.intlfcstone.com/static-files/9affe773-be54-4421-b502-562d2aa0355e [Accessed:
12/12/19].
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Massa, L., Tucci, C.L. and Afuah, A. (2017) A critical assessment of business model
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Schroeder, R.G., Clark, M.W. and Cathey, J.M. (2019) Financial accounting theory and
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Thomas Cook. (2018) Annual Report 2015. [online] Available From:
https://resources.thomascook.in/downloads/ThomasCookIndiaLtdAnnulReport2015-16.pdf

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Thomas Cook. (2018) Annual Report 2016. [online] Available From:
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%20FY%202016-17.pdf
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1.
2.